SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-11156
NGC CORPORATION
(Exact name of registrant as specified in its charter)
AND EACH OF THE SUBSIDIARY GUARANTORS OF $250 MILLION OF DEBT SECURITIES
DELAWARE 75-2386657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13430 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040
(Address of principal executive offices)
(Zip Code)
(713) 507-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: Common stock, $.01 par value per share,
111,099,574 shares outstanding as of August 9, 1996.
Page 1 of 23
NGC CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets:
June 30, 1996 and December 31, 1995.........................3
Condensed Consolidated Statements of Operations:
For the three months ended June 30, 1996 and 1995...........4
For the six months ended June 30, 1996 and 1995.............5
Condensed Consolidated Statements of Cash Flows:
For the six months ended June 30, 1996 and 1995.............6
Notes to Condensed Consolidated Financial Statements...............7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................22
Item 2. Not Applicable............................................--
Item 3. Not Applicable............................................--
Item 4. Submission of Matters to a Vote of Security Holders.......22
Item 5. Not Applicable............................................--
Item 6. Exhibits and Reports on Form 8-K..........................23
Page 2 of 23
NGC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 52,413 $ 16,266
Accounts receivable, net .............................................. 481,249 562,278
Accounts receivable, affiliates ....................................... 2,945 1,624
Inventories ........................................................... 70,322 74,263
Assets from risk management activities ................................ 114,665 88,093
Prepayments and other assets .......................................... 16,349 20,415
----------- -----------
737,943 762,939
----------- -----------
PROPERTY, PLANT AND EQUIPMENT ......................................... 1,025,884 1,013,354
Less: accumulated depreciation ........................................ (92,361) (64,843)
----------- -----------
933,523 948,511
----------- -----------
OTHER ASSETS:
Investments in unconsolidated affiliates .............................. 72,696 62,370
Assets from risk management activities ................................ 22,600 26,380
Other assets .......................................................... 85,168 75,052
----------- -----------
$ 1,851,930 $ 1,875,252
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................... $ 474,956 $ 543,108
Accounts payable, affiliates .......................................... 11,460 22,547
Accrued liabilities ................................................... 59,819 58,736
Liabilities from risk management activities ........................... 111,183 81,283
----------- -----------
657,418 705,674
LONG-TERM DEBT ........................................................ 480,720 522,764
OTHER LIABILITIES:
Liabilities from risk management activities ........................... 18,431 22,570
Deferred income taxes ................................................. 61,165 43,227
Other long-term liabilities ........................................... 35,602 28,637
----------- -----------
1,253,336 1,322,872
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 50,000,000 shares authorized ........ -- --
Common stock, $0.01 par value, 300,000,000 shares authorized;
111,059,094 shares issued and outstanding at June 30, 1996;
110,493,411 shares issued and 105,031,874 shares outstanding at
December 31, 1995 ............................................. 1,110 1,105
Additional paid-in capital ............................................ 519,896 515,785
Retained earnings ..................................................... 77,588 35,490
----------- -----------
598,594 552,380
----------- -----------
$ 1,851,930 $ 1,875,252
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 23
NGC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands,
except per share data)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
----------- ---------
Revenues ..................................... $ 1,163,151 $ 841,028
Cost of sales ................................ 1,111,156 797,629
----------- ---------
Operating margin ..................... 51,995 43,399
Depreciation and amortization ................ 14,935 12,951
General and administrative expenses .......... 18,337 17,384
----------- ---------
Operating income ..................... 18,723 13,064
Equity in earnings of unconsolidated
affiliates ............................. 8,148 4,305
Other income ................................. 973 899
Interest expense ............................. (9,125) (9,035)
Other expenses ............................... (1,495) (3,071)
----------- ---------
Income before income taxes ................... 17,224 6,162
Income tax provision ......................... 3,386 1,289
----------- ---------
NET INCOME ................................... $ 13,838 $ 4,873
=========== =========
NET INCOME PER SHARE:
Net income per common and
common equivalent share ................ $ 0.12 $ 0.04
=========== =========
Weighted average number of common
and common equivalent shares
outstanding ............................ 120,050 117,477
=========== =========
See notes to condensed consolidated financial statements.
Page 4 of 23
NGC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands,
except per share data)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
----------- -----------
Revenues ..................................... $ 2,810,274 $ 1,643,972
Cost of sales ................................ 2,668,197 1,569,087
----------- -----------
Operating margin ..................... 142,077 74,885
Depreciation and amortization ................ 29,105 18,577
General and administrative expenses .......... 40,613 31,855
----------- -----------
Operating income ..................... 72,359 24,453
Equity in earnings of unconsolidated
affiliates ............................. 12,658 9,163
Other income ................................. 2,594 1,497
Interest expense ............................. (19,778) (12,767)
Other expenses ............................... (3,988) (4,437)
----------- -----------
Income before income taxes ................... 63,845 17,909
Income tax provision (benefit) ............... 19,679 (42,238)
----------- -----------
NET INCOME ................................... $ 44,166 $ 60,147
=========== ===========
NET INCOME PER SHARE: PRO FORMA
Income before income taxes ................... $ 63,845 $ 17,909
Income tax provision ......................... 19,679 5,671
----------- -----------
Net income ................................... $ 44,166 $ 12,238
=========== ===========
Net income per common and
common equivalent share ................ $ 0.37 $ 0.11
=========== ===========
Weighted average number of common
and common equivalent shares
outstanding ............................ 119,355 111,158
=========== ===========
See notes to condensed consolidated financial statements.
Page 5 of 23
NGC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 44,166 $ 60,147
Items not affecting cash flows from operating activities:
Depreciation and amortization ................................ 29,105 18,577
Equity in earnings of affiliates, net of cash distributions .. (12,546) (6,818)
Risk management activities ................................... 2,969 4,359
Deferred income taxes ........................................ 17,944 (44,948)
Amortization of bond premium ................................. (2,044) (1,269)
Changes in assets and liabilities resulting from operating activities:
Accounts receivable .......................................... 79,708 66,423
Inventories .................................................. 3,941 (20,459)
Prepayments and other assets ................................. 4,066 (3,215)
Accounts payable ............................................. (79,275) (41,797)
Accrued liabilities .......................................... 1,083 717
Other, net ........................................................... (2,416) 2,930
--------- ---------
Net cash provided by operating activities ............................ 86,701 34,647
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................. (26,920) (75,525)
Acquisition of Trident NGL Holding, Inc., net of cash acquired ....... -- (165,267)
Investment in unconsolidated affiliates, net ......................... 4,389 (14,169)
Other, net ........................................................... 14,500 --
--------- ---------
Net cash used in investing activities ................................ (8,031) (254,961)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ................................... 608,000 475,550
Repayments of long-term borrowings ................................... (648,000) (389,000)
Proceeds from sale of capital stock, options and warrants ............ 858 --
Capital contributions ................................................ -- 135,000
Dividends and other distributions .................................... (3,381) (7,944)
--------- ---------
Net cash provided by (used in) financing activities .................. (42,523) 213,606
--------- ---------
Net change in cash and cash equivalents .............................. 36,147 (6,708)
Cash and cash equivalents, beginning of period ....................... 16,266 15,219
--------- ---------
Cash and cash equivalents, end of period ............................. $ 52,413 $ 8,511
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6 of 23
NGC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE INTERIM PERIODS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
NOTE 1 -- ACCOUNTING POLICIES
THE ACCOMPANYING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN
PREPARED IN ACCORDANCE WITH THE INSTRUCTIONS TO INTERIM FINANCIAL REPORTING AS
PRESCRIBED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC"). THESE INTERIM
FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K, AS AMENDED, FOR THE YEAR ENDED DECEMBER 31, 1995, FILED WITH THE
SEC.
THE FINANCIAL STATEMENTS INCLUDE ALL MATERIAL ADJUSTMENTS CONSISTING ONLY OF
NORMAL RECURRING ADJUSTMENTS WHICH, IN THE OPINION OF MANAGEMENT, WERE NECESSARY
FOR A FAIR PRESENTATION OF THE RESULTS FOR THE INTERIM PERIODS. INTERIM PERIOD
RESULTS ARE NOT NECESSARILY INDICATIVE OF THE RESULTS FOR THE FULL YEAR. THE
PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO DEVELOP
ESTIMATES AND MAKE ASSUMPTIONS THAT AFFECT REPORTED FINANCIAL POSITION AND
RESULTS OF OPERATIONS AND THAT IMPACT THE NATURE AND EXTENT OF DISCLOSURE, IF
ANY, OF CONTINGENT ASSETS AND LIABILITIES. ACTUAL RESULTS COULD DIFFER FROM
THOSE ESTIMATES.
NOTE 2 -- ACQUISITION OF GAS MARKETING AND MIDSTREAM ASSETS
NGC CORPORATION ("NGC" OR THE "COMPANY") AND CHEVRON CORPORATION ("CHEVRON")
ANNOUNCED ON JANUARY 22, 1996, A PROPOSED MERGER THAT WOULD CREATE A NEW COMPANY
COMPRISED OF ALL OF NGC AND SUBSTANTIALLY ALL OF CHEVRON'S GAS GATHERING,
PROCESSING AND MARKETING OPERATIONS AS WELL AS ESTABLISH CERTAIN STRATEGIC
ALLIANCES BETWEEN THE TWO COMPANIES ("MERGER"). THE COMBINATION AGREEMENT AND
PLAN OF MERGER WAS SIGNED ON MAY 22, 1996. A SPECIAL MEETING OF NGC'S
STOCKHOLDERS WILL BE HELD ON FRIDAY AUGUST 30, 1996, TO VOTE ON THE MERGER.
SUBJECT TO APPROVAL BY NGC'S STOCKHOLDERS AT THE SPECIAL MEETING AND APPROVAL BY
THE FEDERAL TRADE COMMISSION ("FTC"), THE MERGER WILL BECOME EFFECTIVE AUGUST
31, 1996. THE COMBINED COMPANY ("NEW NGC"), WHICH WILL RETAIN THE NAME NGC
CORPORATION, WILL INCLUDE ALL OF NGC AND MOST OF TWO CHEVRON BUSINESS UNITS: THE
HOUSTON-BASED NATURAL GAS BUSINESS UNIT AND TULSA-BASED WARREN PETROLEUM
COMPANY. FOR ITS CONTRIBUTION, CHEVRON WILL RECEIVE APPROXIMATELY 46.4 MILLION
SHARES IN THE NEW COMPANY, IN A COMBINATION OF COMMON AND PREFERRED SHARES, AND
APPROXIMATELY $300 MILLION IN A COMBINATION OF CASH AND DEBT ASSUMPTION.
NOTE 3 -- BUSINESS COMBINATION WITH TRIDENT NGL HOLDING, INC. ("TRIDENT")
ON MARCH 14, 1995, NATURAL GAS CLEARINGHOUSE ("CLEARINGHOUSE") CONSUMMATED A
STRATEGIC BUSINESS COMBINATION ("COMBINATION") WITH TRIDENT AND THE COMBINED
ENTITIES WERE RENAMED NGC CORPORATION ("NGC" OR THE "COMPANY"). THE PURCHASE
PRICE OF APPROXIMATELY $350 MILLION, EXCLUDING TRANSACTION COSTS AND LIABILITIES
ASSUMED, WAS ALLOCATED TO THE ASSETS ACQUIRED AND LIABILITIES ASSUMED BASED ON
THEIR ESTIMATED FAIR VALUES AS OF MARCH 1, 1995, THE EFFECTIVE DATE OF THE
COMBINATION FOR ACCOUNTING PURPOSES. THE COMBINATION WAS ACCOUNTED FOR UNDER THE
PURCHASE METHOD OF ACCOUNTING AND THE RESULTS OF OPERATIONS OF TRIDENT ARE
INCLUDED IN THE ACCOMPANYING FINANCIAL STATEMENTS EFFECTIVE MARCH 1, 1995.
ON FEBRUARY 29,1996, A DETERMINATION WAS MADE WITH REGARD TO THE 5,461,538
CONTINGENT SHARES, REPRESENTING SHARES OF NGC STOCK TO BE ISSUED TO THE FORMER
OWNERS OF THE PARTNERS OF CLEARINGHOUSE ("CLEARINGHOUSE OWNERS") AND THE FORMER
SHAREHOLDERS OF TRIDENT ("TRIDENT SHAREHOLDERS") IN ACCORDANCE WITH TERMS OF THE
COMBINATION, AND SUCH SHARES WERE ALLOCATED IN A RATIO OF 17 PERCENT TO THE
TRIDENT SHAREHOLDERS AND 83 PERCENT TO THE CLEARINGHOUSE OWNERS.
Page 7 of 23
NGC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE INTERIM PERIODS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
THE FOLLOWING TABLE REFLECTS CERTAIN UNAUDITED PRO FORMA INFORMATION FOR THE
PERIOD PRESENTED AS IF THE COMBINATION TOOK PLACE AT THE BEGINNING OF 1995 (IN
THOUSANDS, EXCEPT PER SHARE DATA):
SIX MONTHS
ENDED
JUNE 30, 1995
----------
PRO FORMA REVENUES ..................................... $1,732,896
==========
PRO FORMA NET INCOME ................................... $ 13,512
==========
PRO FORMA NET INCOME PER SHARE ......................... $ 0.12
==========
NOTE 4 -- EARNINGS PER SHARE
NET INCOME PER SHARE IS BASED ON THE WEIGHTED AVERAGE NUMBER OF COMMON STOCK
SHARES OUTSTANDING PLUS THE COMMON STOCK EQUIVALENTS THAT WOULD ARISE FROM THE
EXERCISE OF OUTSTANDING OPTIONS OR WARRANTS, WHEN DILUTIVE. PRIMARY AND FULLY
DILUTED EARNINGS PER SHARE ARE THE SAME FOR ALL PERIODS PRESENTED.
PRO FORMA INCOME TAXES REFLECTED IN THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1995, REFLECT THE INCREMENTAL
STATUTORY FEDERAL AND STATE INCOME TAXES THAT WOULD HAVE BEEN PROVIDED HAD
CLEARINGHOUSE BEEN A TAXPAYING ENTITY DURING THAT PERIOD. PRO FORMA NET INCOME
PER SHARE IS BASED ON THE WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING PLUS THE COMMON STOCK EQUIVALENTS THAT WOULD ARISE FROM THE EXERCISE
OF OUTSTANDING OPTIONS OR WARRANTS, WHEN DILUTIVE. THE COMPUTATIONS ASSUME THE
COMPANY WAS INCORPORATED DURING THE PERIOD PRESENTED AND GIVES EFFECT TO THE
TERMS OF THE COMBINATION.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE BASED ON REPORTED NET INCOME
OF $60.1 MILLION FOR THE SIX- MONTH PERIOD ENDED JUNE 30, 1995, COMPUTED USING
THE WEIGHTED AVERAGE SHARES OUTSTANDING FOR THE PERIOD WAS $0.54 PER SHARE. THE
PRO FORMA NET INCOME PER SHARE AMOUNT OF $0.11 REPORTED IN THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX-MONTHS ENDED JUNE 30, 1995,
REFLECTS ADJUSTMENTS TO REPORTED NET INCOME FOR A NON-RECURRING DEFERRED INCOME
TAX BENEFIT OF $45.7 MILLION RECOGNIZED AS A RESULT OF THE COMBINATION AND THE
INCREMENTAL PRO FORMA STATUTORY INCOME TAX PROVISION ON CLEARINGHOUSE'S
PRE-COMBINATION PARTNERSHIP INCOME.
NOTE 5 -- UNCONSOLIDATED AFFILIATES
AT JUNE 30, 1996, NGC'S INVESTMENT IN UNCONSOLIDATED AFFILIATES ACCOUNTED FOR BY
THE EQUITY METHOD INCLUDED A 49.9 PERCENT AGGREGATE PARTNERSHIP INTEREST IN
NOVAGAS CLEARINGHOUSE LTD. ("NCL"), A CANADIAN LIMITED PARTNERSHIP, A 49 PERCENT
INTEREST IN ACCORD ENERGY LIMITED ("ACCORD"), A U.K. LIMITED COMPANY, A 38.75
PERCENT PARTNERSHIP INTEREST IN GULF COAST FRACTIONATORS ("GCF"), AN APPROXIMATE
28 PERCENT INTEREST IN AVOCA NATURAL GAS STORAGE ("AVOCA") AND AN APPROXIMATE 25
PERCENT INTEREST IN CAYUTA NATURAL GAS STORAGE. SUMMARIZED UNAUDITED COMBINED
INCOME STATEMENT INFORMATION FOR THESE UNCONSOLIDATED AFFILIATES IS PRESENTED IN
THE TABLE BELOW:
Page 8 of 23
NGC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE INTERIM PERIODS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
1996 1995
---------------------- --------------------
EQUITY EQUITY
TOTAL SHARE TOTAL SHARE
---------- -------- -------- --------
($US IN THOUSANDS)
REVENUES (1) ................. $1,021,058 $505,555 $586,618 $289,206
========== ======== ======== ========
OPERATING MARGIN (1) ......... $ 54,555 $ 25,807 $ 26,257 $ 12,611
========== ======== ======== ========
NET INCOME (1) ............... $ 23,876 $ 12,658 $ 12,986 $ 9,163
========== ======== ======== ========
(1) INCLUDES GCF'S OPERATIONS FROM MARCH 1, 1995 (EFFECTIVE DATE OF THE
COMBINATION) FORWARD.
IN 1996, THE COMPANY SOLD A PROPRIETARY SOFTWARE SYSTEM TO NCL, RECOGNIZING $0.7
MILLION OF PRE-TAX INCOME WHICH IS INCLUDED IN 'OTHER INCOME' IN THE COMPANY'S
STATEMENTS OF OPERATIONS.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
APACHE ARBITRATION. ON FEBRUARY 12, 1996, APACHE CORPORATION ("APACHE")
REQUESTED ARBITRATION TO RESOLVE ISSUES ARISING UNDER A GAS MARKETING CONTRACT
("CONTRACT") WITH CLEARINGHOUSE PURSUANT TO THE ARBITRATION PROVISIONS OF SUCH
CONTRACT. ON FEBRUARY 26, 1996, CLEARINGHOUSE RESPONDED BY DENYING APACHE'S
CLAIMS AND BY ALLEGING SEVERAL COUNTERCLAIMS OF ITS OWN WITH RESPECT TO APACHE'S
PERFORMANCE UNDER THE CONTRACT. IN CONNECTION WITH THE ARBITRATION PROCEEDINGS,
ON APRIL 9, 1996, APACHE FILED A LAWSUIT AGAINST CLEARINGHOUSE IN THE 55TH
JUDICIAL DISTRICT COURT OF HARRIS COUNTY, TEXAS ("COURT"). IN THAT LAWSUIT,
APACHE ALLEGES THAT CLEARINGHOUSE IS INTENTIONALLY DELAYING THE PROGRESS OF THE
ARBITRATION, AND IT REQUESTS RELIEF, PURSUANT TO THE TEXAS GENERAL ARBITRATION
ACT, IN THE FORM OF AN ORDER APPOINTING A THIRD ARBITRATOR, COMPELLING DISCOVERY
AND REQUIRING CLEARINGHOUSE TO ASSIGN CERTAIN CONTRACTS ALLEGEDLY BELONGING TO
APACHE. CLEARINGHOUSE FILED A RESPONSE TO THE LAWSUIT ON MAY 6, 1996, ASKING
THAT THE COURT DISMISS APACHE'S APPLICATION FOR RELIEF OR ABATE THE SUIT PENDING
RESOLUTION OF ALL MATTERS BY THE ARBITRATION PANEL ACCORDING TO THE TERMS OF THE
CONTRACT. CLEARINGHOUSE HAS ALSO REQUESTED PAYMENT OF ALL ATTORNEYS' FEES AND
OTHER LITIGATION EXPENSES INCURRED IN RESPONDING TO AND DEFENDING THE SUIT.
CLEARINGHOUSE INTENDS TO VIGOROUSLY DEFEND THE APACHE SUIT AND THE ARBITRATION.
IN THE ARBITRATION AND AGAIN IN THE LAWSUIT, APACHE CLAIMS THAT IT IS ENTITLED
TO ACTUAL DAMAGES IN AN UNDETERMINED AMOUNT IN EXCESS OF $8 MILLION, AND
PUNITIVE DAMAGES CALCULATED BY TRIPLING THE AMOUNT OF ACTUAL DAMAGES. NGC
MANAGEMENT BELIEVES, BASED ON ITS REVIEW OF THE FACTS AND CONSULTATION WITH
OUTSIDE COUNSEL, THAT THE ULTIMATE RESOLUTION OF THE APACHE SUIT WILL NOT HAVE
AN ADVERSE IMPACT ON THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS,
AND THAT ANY PAYMENTS EVENTUALLY MADE IN CONNECTION WITH THE ARBITRATION AND/OR
THE LAWSUIT WILL BE SUBSTANTIALLY LESS THAN THE AMOUNT CLAIMED.
FEDERAL TRADE COMMISSION INVESTIGATION. NGC AND CHEVRON HAVE PARTICIPATED IN
DISCUSSIONS IN WHICH MEMBERS OF THE FTC STAFF HAVE EXPRESSED ANTITRUST CONCERNS
CONCERNING THE MERGER, FOCUSED UPON CERTAIN FRACTIONATION FACILITIES AND
OPERATIONS THAT COMPRISE A PART OF NGC AND THE CHEVRON ASSETS. IN ORDER TO AVOID
THE EXPENSE AND DELAY ASSOCIATED WITH LITIGATION, NGC HAS REACHED AN AGREEMENT
IN PRINCIPLE WITH THE FTC STAFF PURSUANT TO WHICH NGC WOULD AGREE TO SELL ITS 80
PERCENT OWNERSHIP INTEREST IN THE MONT BELVIEU I FRACTIONATOR AND WOULD
RELINQUISH ITS POSITION AS OPERATOR OF GCF. THE AGREEMENT IN PRINCIPLE IS
SUBJECT TO NEGOTIATION AND EXECUTION OF APPROPRIATE DOCUMENTATION AND APPROVAL
BY THE FTC. AS A RESULT OF SUCH PROVISIONS, NGC MAY NOT BE ABLE TO REALIZE FULL
FAIR VALUE OF ITS INTEREST IN MONT BELVIEU I AND SUCH DIVESTITURE, ALONG WITH
THE RELINQUISHMENT OF THE OPERATORSHIP OF GCF, MAY PRECLUDE NGC FROM DERIVING
FULL BENEFITS AND SYNERGIES FROM THE MERGER. FURTHER, THE AGREEMENT IN PRINCIPLE
WITH THE FTC STAFF IS SUBJECT TO APPROVAL BY THE FTC AND IT IS POSSIBLE THAT THE
FTC COULD INSIST UPON OTHER TERMS AND CONDITIONS THAT WOULD BE DETRIMENTAL TO
NGC'S FINANCIAL INTERESTS. IN ADDITION, THERE CAN BE NO ASSURANCE THAT THE FTC
WILL ACT IN A TIMELY MANNER.
AVOCA NATURAL GAS STORAGE PROJECT. On August 14, 1996, the Avoca Natural Gas
Storage Project announced that construction at the 5 billion cubic foot storage
facility had been temporarily suspended pending resolution of technical
engineering issues associated with the project's brine disposal capability. NGC
owns a 28 percent equity interest in this project. Project senior management are
in the process of reviewing various alternative solutions to the engineering
issues and expect to proceed with the construction program once a practical
alternative is identified. The project's partners are reviewing alternative
solutions for the project's storage-capacity holders should the temporary
suspension delay the scheduled start of commercial operations, which are
currently anticipated to commence in October 1997. NGC management believes that
a viable solution to the engineering issues will be identified and implemented
and that the project will be completed in time to meet Avoca's customers'
storage requirements.
Page 9 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NGC CORPORATION
INCLUDED ELSEWHERE HEREIN AND WITH THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AS
AMENDED, FOR THE YEAR ENDED DECEMBER 31, 1995.
GENERAL
COMPANY PROFILE
NGC IS A LEADING NORTH AMERICAN MARKETER OF NATURAL GAS, NATURAL GAS LIQUIDS,
CRUDE OIL AND ELECTRIC POWER AND IS ENGAGED IN NATURAL GAS GATHERING, PROCESSING
AND TRANSPORTATION THROUGH OWNERSHIP AND OPERATION OF NATURAL GAS PROCESSING
PLANTS, STORAGE FACILITIES AND PIPELINES. THROUGH JOINT VENTURES IN BOTH CANADA
AND THE UNITED KINGDOM, THE COMPANY HAS EXPANDED GEOGRAPHICALLY ITS VISION OF
PROVIDING CUSTOMERS HAVING MULTIPLE ENERGY COMMODITY NEEDS WITH COST-EFFECTIVE
PRODUCTS AND VALUE ADDED SERVICES. ACTING IN THE ROLE OF A LARGE-SCALE
AGGREGATOR, PROCESSOR, MARKETER AND RELIABLE SUPPLIER OF MULTIPLE ENERGY
PRODUCTS AND SERVICES, NGC HAS EVOLVED INTO A 'ONE- STOP' ENERGY COMMODITY AND
SERVICE PROVIDER.
NGC IS A HOLDING COMPANY THAT OPERATES PRINCIPALLY THROUGH TWO SUBSIDIARIES,
CLEARINGHOUSE, A COLORADO PARTNERSHIP, AND TRIDENT NGL, INC., A DELAWARE
CORPORATION ("TRIDENT NGL"). THE COMPANY HAS TWO PRIMARY BUSINESS SEGMENTS: THE
NATURAL GAS AND ELECTRIC POWER MARKETING SEGMENT ("MARKETING") AND THE NATURAL
GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION SEGMENT ("LIQUIDS").
RECENT DEVELOPMENTS
NGC CORPORATION ("NGC" OR THE "COMPANY") AND CHEVRON CORPORATION ("CHEVRON")
ANNOUNCED ON JANUARY 22, 1996, A PROPOSED MERGER THAT WOULD CREATE A NEW COMPANY
COMPRISED OF ALL OF NGC AND SUBSTANTIALLY ALL OF CHEVRON'S GAS GATHERING,
PROCESSING AND MARKETING OPERATIONS AS WELL AS ESTABLISH CERTAIN STRATEGIC
ALLIANCES BETWEEN THE TWO COMPANIES. THE COMBINATION AGREEMENT AND PLAN OF
MERGER WAS SIGNED ON MAY 22, 1996. A SPECIAL MEETING OF NGC'S STOCKHOLDERS WILL
BE HELD ON FRIDAY AUGUST 30, 1996, TO VOTE ON THE MERGER. SUBJECT TO APPROVAL BY
NGC'S STOCKHOLDERS AT THE SPECIAL MEETING AND APPROVAL BY THE FEDERAL TRADE
COMMISSION, THE MERGER WILL BECOME EFFECTIVE AUGUST 31, 1996. THE COMBINED
COMPANY, WHICH WILL RETAIN THE NAME NGC CORPORATION, WILL INCLUDE ALL OF NGC AND
MOST OF TWO CHEVRON BUSINESS UNITS: THE HOUSTON-BASED NATURAL GAS BUSINESS UNIT
AND TULSA-BASED WARREN PETROLEUM COMPANY. FOR ITS CONTRIBUTION, CHEVRON WILL
RECEIVE APPROXIMATELY 46.4 MILLION SHARES IN THE NEW COMPANY, IN A COMBINATION
OF COMMON AND PREFERRED SHARES, AND APPROXIMATELY $300 MILLION IN A COMBINATION
OF CASH AND DEBT ASSUMPTION.
THE COMBINATION OF NGC AND THE TWO CHEVRON BUSINESS UNITS WILL MAKE THE COMBINED
COMPANY THE LEADING MARKETER OF NATURAL GAS IN NORTH AMERICA, WITH AVERAGE DAILY
SALES OF APPROXIMATELY 10 BILLION CUBIC FEET, OR AN ESTIMATED 14 PERCENT OF
TOTAL NORTH AMERICAN GAS CONSUMPTION. THE PROPOSED TRANSACTION WILL ESTABLISH
NGC AS THE SECOND LARGEST PRODUCER AND LARGEST MARKETER OF NATURAL GAS LIQUIDS
("NGL") IN NORTH AMERICA, WITH PRODUCTION OF APPROXIMATELY 140,000 BARRELS PER
DAY AND SALES OF APPROXIMATELY 470,000 BARRELS PER DAY.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
THIS QUARTERLY REPORT CONTAINS VARIOUS FORWARD-LOOKING STATEMENTS AND
INFORMATION THAT ARE BASED ON MANAGEMENT'S BELIEFS AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED IN THIS
DOCUMENT, WORDS SUCH AS "ANTICIPATE", "ESTIMATE", "PROJECT", AND "EXPECT" ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR
SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE
Page 10 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANTICIPATED, ESTIMATED, PROJECTED OR EXPECTED. AMONG THE KEY FACTORS THAT MAY
HAVE A DIRECT BEARING ON NGC'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION
ARE: (I) COMPETITIVE PRACTICES IN THE INDUSTRIES WHICH NGC COMPETES, (II)
FLUCTUATIONS IN ENERGY COMMODITY PRICES WHICH HAVE NOT BEEN HEDGED OR WHICH ARE
INCONSISTENT WITH NGC'S OPEN POSITION, IF ANY, IN ITS ENERGY MARKETING
ACTIVITIES, (III) ENVIRONMENTAL LIABILITIES TO WHICH NGC MAY BECOME SUBJECT IN
THE FUTURE WHICH ARE NOT COVERED BY INDEMNITY OR INSURANCE, AND (IV) THE IMPACT
OF CURRENT AND FUTURE LAWS AND GOVERNMENTAL REGULATIONS (PARTICULARLY
ENVIRONMENTAL REGULATIONS) AFFECTING THE ENERGY INDUSTRY IN GENERAL AND NGC'S
OPERATIONS IN PARTICULAR.
RESULTS OF OPERATIONS
PROVIDED BELOW IS A TABULAR PRESENTATION OF CERTAIN DOMESTIC AND INTERNATIONAL
OPERATING AND FINANCIAL STATISTICS FOR THE COMPANY'S SEGMENTS AND SUBSEGMENTS
FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995, RESPECTIVELY.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- -------- ---------- --------
($ in millions)
<S> <C> <C> <C> <C>
Natural Gas and Electric Power Marketing Segment:
Operating Margin ............................................. $ 8.3 $ 4.3 $ 54.4 $ 19.5
Natural Gas Marketing -
Average sales volume per day (Bcf/d) (2) .................. 3.1 3.2 3.5 3.4
NGC's interest in operations of foreign equity investees (3) -
Average sales volume per day (Bcf/d) (4) ................. 3.3 2.1 3.5 1.8
Electric Power Marketing -
Gross sales volumes (gigawatt hours) ..................... 2,129 654 4,558 895
Average megawatts per hour ............................... 975 297 1,043 206
Natural Gas Liquids, Crude Oil and Gas Transmission Segment:
Operating Margin ............................................. $ 43.7 $ 39.1 $ 87.7 $ 55.4
Natural Gas Processing -
Operating margin ......................................... $ 23.0 $ 24.4 $ 44.9 $ 33.9
Gross barrels processed (MBbls/d) ........................ 78.1 87.3 70.5 65.3
Net barrels processed (MBbls/d) .......................... 61.4 68.9 54.8 50.3
Fractionation (5) -
Operating margin ......................................... $ 3.8 $ 4.5 $ 5.9 $ 6.6
Barrels received for fractionation (MBbls/d) ............. 116.5 113.7 110.6 76.6
Liquids and Crude Oil Marketing -
Operating margin ......................................... $ 12.3 $ 5.1 $ 26.7 $ 7.8
NGL Marketing - sales volumes (MBbls/d) .................. 148.3 120.4 153.1 94.0
Crude Oil Marketing - sales volumes (MBbls/d) ............ 103.5 43.9 102.8 44.9
Transmission and Other -
Operating margin ......................................... $ 4.6 $ 5.1 $ 10.2 $ 7.1
</TABLE>
(1) The Combination was accounted for under the purchase method of
accounting and the results of operations of Trident are included in the
accompanying financial statements and in these operating statistics
effective March 1, 1995.
(2) Includes 0.1 and 0.07 Bcf/d in intercompany gas sales for the
three-month periods ended June 30, 1996 and 1995, and 0.1 and 0.05 Bcf/d
in intercompany gas sales for the six-month periods ended June 30, 1996
and 1995, respectively.
(3) Includes NCL and Accord.
(4) Includes 0.3 Bcf/d of inter-affiliate gas sales for both the 1996 and
1995 three- and six-month periods, respectively.
(5) Information excludes the Company's proportionate share of GCF's margin
and fractionation volumes.
Page 11 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
For the quarter ended June 30, 1996, NGC realized net income of $13.8 million,
or $0.12 per share, on total revenue of $1.2 billion compared with second
quarter 1995 net income of $4.9 million, or $0.04 per share, on revenue of
$841.0 million. Income before income taxes totaled $17.2 million for the
three-months ended June 30, 1996, an $11.1 million increase over the comparable
1995 period. The increase in net income between periods reflects earnings
improvement in both operating segments and is generally a result of stronger gas
marketing margins combined with higher NGL marketing and crude oil sales volumes
and margins in the 1996 period.
Consolidated operating margin for the second quarter of 1996 totaled $52.0
million, an $8.6 million increase over the $43.4 million reported in the
corresponding 1995 period. Marketing contributed $8.3 million to the
consolidated margin, an improvement of $4.0 million over the second quarter 1995
margin of $4.3 million; whereas, Liquids contributed $43.7 million to the
consolidated margin compared with $39.1 million in the 1995 quarter. Operating
income totaled $18.7 million in the second quarter of 1996 compared with $13.1
million in the comparable 1995 period, an increase of $5.6 million, reflecting
the aforementioned increase in consolidated operating margin offset by increases
in both depreciation and amortization and general and administrative expenses.
The increase in depreciation and amortization expense results principally from
the continued expansion of the Company's depreciable asset base resulting from
acquisitions and capital projects completed during the four quarters in the
period ended June 30, 1996. The increased level of general and administrative
expenses resulted principally from the incremental effect of increased overhead
required to support the previously mentioned growth.
NGC's quarterly results include the Company's equity share in the earnings of
its unconsolidated affiliates which contributed an aggregate $8.1 million to
second quarter 1996 pre-tax income compared with $4.3 million in the 1995
period. NGC's investment in its foreign joint venture affiliates, NCL and
Accord, contributed $7.2 million to equity earnings compared with $3.9 million
in 1995. Combined, the foreign joint venture affiliates averaged 3.3 Bcf/d of
gas sales during the 1996 quarter, an increase of 1.2 Bcf/d over the average
daily sales volume reported in the second quarter of 1995. The increase in
volumes sold is primarily attributed to NCL's acquisition of Pan-Alberta Gas,
Ltd. ("Pan-Alberta") in June 1995. The remaining $0.9 million of 1996 quarterly
equity earnings result principally from the Company's investment in GCF.
Interest expense was level between periods totalling $9.1 million for the
quarter ended June 30, 1996, and $9.0 million for the same 1995 period. The
average outstanding principal balance was slightly lower during the quarter
ended June 30, 1996, as compared with the 1995 period but the Company's average
interest rate, which is a weighted average rate derived from a combination of
fixed and variable rates attributed to the Company's senior and subordinated
indebtedness, was slightly higher in the 1996 period as compared with 1995.
The Company recognized a charge of $0.5 million in the 1996 quarter and $1.75
million in the 1995 quarter representing losses incurred at two separate gas
processing facilities as a result of a fire and a tornado, respectively. The
charges represent the Company's uninsured exposure resulting from insurance
deductibles in existence at the date of each casualty loss. Such amounts are
included as 'other expenses' in the Company's statements of operations.
The Company reported an income tax provision of $3.4 million for the three-month
period ended June 30, 1996, representing an effective rate of 20 percent, which
compared with an income tax provision of $1.3 million and an effective rate of
21 percent for the equivalent 1995 period. During the second quarter of 1996,
the Company
Page 12 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
received a refund of approximately $0.8 million related to foreign taxes paid on
dividends received from Accord. Other differences between the aforementioned
effective rates and the statutory rate of 37 percent for each of the three-month
periods ended June 30, 1996 and 1995, respectively, include permanent
differences and the effect of certain foreign equity investments.
NATURAL GAS AND ELECTRIC POWER MARKETING
Entering the second quarter of 1996, management believed demand for natural gas
would be higher than is normal for a spring quarter as a result of gas
injections required to restore low storage levels to historical ranges which, in
turn, would likely increase market price volatility translating into opportunity
for the segment. However, consistent with historical market conditions and those
seen during the second quarter of 1995, results for the second quarter of 1996
reflected normal seasonal demand and a lack of price volatility typically
associated with the spring period. Marketing's operating margin for the
three-month period ended June 30, 1996, totaled $8.3 million compared with $4.3
million in the same 1995 period. The $4.0 million improvement in the segment's
operating margin was primarily a result of higher per unit sales margins in 1996
as gas sales volumes were virtually flat period to period. Domestic gas volumes
sold totaled 3.1 Bcf/d in 1996 compared with 3.2 Bcf/d in 1995.
NGC's electric power marketing business operates through Electric Clearinghouse,
Inc. ("ECI") which began marketing electric power in January 1995. For the
quarter ended June 30, 1996, ECI reported sales volumes of 2.1 million megawatt
hours which compares with second quarter 1995 sales volumes of 0.7 million
megawatt hours. Daily volumes increased three times, totaling 975 megawatts per
hour, compared with 297 megawatts per hour during the second quarter of 1995.
ECI is continuing to pursue opportunities to broaden its domestic marketing of
electric power and is introducing a variety of services to this burgeoning
industry.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
Liquids reported a second quarter 1996 operating margin of $43.7 million,
representing an increase of $4.6 million over the same 1995 period. Key factors
behind the improved operating results include increased sales volumes and
margins in the NGL and crude oil marketing businesses which result from growth
in these operations coupled with volumes added through acquisitions. The
improved earnings were somewhat offset by lower margins in the gas processing
business, before consideration of hedging activities, and the fractionation
business. NGL liquids sales volumes increased 23 percent this quarter to 148.3
thousand barrels per day, up from sales of 120.4 thousand barrels per day in the
second quarter last year. Crude oil sales volumes were also higher, more than
doubling from 43.9 thousand barrels per day to 103.5 thousand barrels per day in
the 1996 period. The lower results reported by the gas processing business
reflect a combination of strong improvement in operating margin quarter to
quarter at the Company's field processing plants which was more than offset by a
quarter to quarter decrease in operating margin at the straddle processing
plants. Improved product prices pushed field plant processing margins up, while
management chose to reduce volume throughput at its straddle plants due to more
favorable economics associated with unprocessed versus processed natural gas
during the period resulting in significantly lower straddle plant margins
quarter to quarter. However, the segment did report higher margins period to
period from its processing activities after taking into account hedging
activities which are captured in the NGL marketing results. Consistent with the
first quarter of 1996, the operating margin reported by the fractionation
business was negatively impacted by higher third-party fractionation fees,
resulting principally from the third quarter 1995 closure of the Lake Charles,
Louisiana fractionator, which more than offset slightly higher volumes received
for fractionation during the period.
Page 13 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
For the six-month period ended June 30, 1996, NGC realized net income of $44.2
million, or $0.37 per share, on total revenue of $2.8 billion compared with
normalized 1995 net income for the same period of $14.4 million, or $0.13 per
share, on total revenue of $1.6 billion. Normalized results for 1995 are
exclusive of a non-recurring income tax benefit of $45.7 million, or $0.41 per
share, related to the Combination. NGC's mid-year 1995 reported net income,
which included the non-recurring benefit, was $60.1 million, or $0.54 per share.
Income before income taxes totaled $63.8 million for the six-months ended June
30, 1996, a $45.9 million increase over the comparable 1995 period. Cash flows
from operating activities for the 1996 six-month period increased to $86.7
million, representing a $52.1 million increase on a period to period comparison.
Increases in both income and operating cash flow are principally a result of
stronger margins generated by the extremely cold temperatures during the first
three months of 1996 which increased the demand for energy products and premium
services during that period, continued sales volume increases during the second
quarter of 1996 in the Company's NGL and crude oil marketing businesses which
allowed NGC to realize improved margins over the 1995 period and the inclusion
of Trident's operations for the entire 1996 period as opposed to only four
months in 1995.
Consolidated operating margin totaled $142.1 million for the six-months ended
June 30, 1996, compared with $74.9 million in the corresponding 1995 period,
reflecting significantly higher margins in both the Marketing and Liquids
segments. Marketing contributed $54.4 million to the consolidated margin, an
improvement of $34.9 million over the operating margin reported in the same 1995
period. Likewise, Liquids improved its operating margin by $32.3 million,
contributing $87.7 million to the consolidated margin in the 1996 period.
Operating income was $72.4 million in the first six months of 1996 compared with
$24.5 million for the equivalent 1995 period, an increase of $47.9 million,
reflecting the aforementioned increase in consolidated operating margin offset
by increases in both depreciation and amortization and general and
administrative expenses. Increased depreciation and amortization expense in 1996
results principally from the inclusion of Trident's operations for the entire
1996 period as opposed to only four months in 1995 combined with the expansion
of the Company's depreciable asset base resulting from construction and other
acquisitions completed during the four quarters in the period ended June 30,
1996. Higher general and administrative expenses resulted from the incremental
effect of the Combination, increased overhead required to support NGC's growth
resulting principally from acquisitions during the twelve months in the period
ended June 30, 1996, and higher variable compensation costs in 1996 as opposed
to the comparable 1995 period.
NGC's six-month results include the Company's equity share in the earnings of
its unconsolidated affiliates which contributed an aggregate $12.7 million to
mid-year 1996 pre-tax income compared with $9.2 million for the same 1995
period. NGC's investment in its foreign joint venture affiliates, NCL and
Accord, contributed $10.7 million to equity earnings in 1996 compared with $8.8
million in 1995. Combined, the foreign joint venture affiliates averaged 3.5
Bcf/d of gas sales during the 1996 period, an increase of 1.7 Bcf/d over the
average sales volume reported in the six-months of 1995. The significant
increase in volumes sold is primarily attributed to NCL and Accord's substantial
growth over the past year and NCL's acquisition of Pan-Alberta in June 1995. The
remaining $2.0 million of 1996 equity earnings result principally from the
Company's investment in GCF, which was acquired by NGC in the Combination.
Interest expense increased $7.0 million to $19.8 million for the six-month
period ended June 30, 1996, compared with $12.8 million in the equivalent 1995
period. The increase is reflective of higher outstanding debt balances resulting
principally from debt assumed in conjunction with the Combination, which amounts
were outstanding for the entire 1996 period as opposed to only four-months in
1995, and borrowings for capital expenditures and
Page 14 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
investments in unconsolidated affiliates. The Company benefitted in the first
six months of 1996 from lower average interest rates applicable to its revolving
credit facility.
In 1996, the Company sold a proprietary software system to NCL, recognizing $0.7
million of pre-tax income which is included in 'other income' in the Company's
statements of operations. Included in 'other expenses' in the Company's
statements of operations for the six-months ended June 30, 1996 and 1995,
respectively, are the previously discussed charges related to the fire and
tornado damage at two separate gas processing facilities.
The Company reported an income tax provision of $19.7 million on pre-tax income
of $63.8 million for the six-month period ended June 30, 1996, an effective rate
of 31 percent. The difference between the 1996 effective rate and the statutory
rate of 37 percent is a result of the aforementioned foreign tax refund,
permanent differences and certain foreign equity investments. In comparison, for
the six-month period ended June 30, 1995, the Company recognized an income tax
benefit of $42.2 million on pre-tax income of $17.9 million. During the first
quarter of 1995, the Company recognized a $45.7 million income tax benefit in
connection with the Combination. The income tax benefit was a result of the
recognition of the excess tax basis held by certain Clearinghouse partners which
can be used to reduce NGC's future income tax liabilities. The six-month 1995
tax provision totaled $3.5 million, exclusive of the effect of the one-time
benefit, resulting in an effective rate of 20 percent. Differences between the
mid-year 1995 effective rate and the statutory rate are attributed to
pre-combination earnings of Clearinghouse which were predominantly taxed as
partnership income and the previously mentioned permanent differences and
foreign equity investments.
NATURAL GAS AND ELECTRIC POWER MARKETING
Marketing's operating margin of $54.4 million for the first half of 1996
reflected both higher sales volumes and improved physical gas sales margins as
compared with the equivalent 1995 period. The improved natural gas marketing
operating results were primarily a result of the extremely cold temperatures
that blanketed much of North America during the first quarter of 1996 which
created high energy demand and a volatile pricing environment resulting in
increased demand for premium services provided by the Company. Domestic gas
volumes sold increased 0.1 Bcf/d to 3.5 Bcf/d in 1996 as compared with 3.4 Bcf/d
in 1995.
For the six-months ended June 30, 1996, ECI reported sales volumes of 4.6
million megawatt hours which compares with 0.9 million megawatt hours for the
same 1995 period. Daily volumes increased five times on average, totaling 1,043
megawatts per hour in 1996, compared with 206 megawatts per hour in 1995.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
Liquids mid-year 1996 operating margin of $87.7 million reflected improvement in
substantially all of the segment's businesses. The earnings improvement is
attributed to a number of factors including: (i) the acquisition of Trident and
the synergies realized from that merger; (ii) the acquisition and efficient
utilization of other assets such as the Ozark Gas Transmission System and a
crude oil pipeline acquired from Kerr-McGee; (iii) improved liquids processing
volumes and margins; (iv) significantly higher crude oil marketing sales volumes
and improved margins; and (v) improved NGL Marketing sales volumes partly as a
result of the LPG Services, Inc. acquisition. The operating margin reported by
the fractionation business was negatively impacted by higher third-party
fractionation fees, resulting principally from the third quarter 1995 closure of
the Lake Charles, Louisiana fractionator, which more than offset higher volumes
received for fractionation during the period.
Page 15 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PRO FORMA SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
The pro forma information provided gives effect to the Combination as if it had
occurred on January 1, 1994 and, accordingly, combines the activities of both
Clearinghouse and Trident for the six-month period ended June 30, 1995. The
information for the six-months ended June 30, 1996, reflects the historical
operating results described previously herein. The pro forma results do not give
effect to any synergies or cost savings expected as a result of the Combination.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of what the actual results of operations would have been
had the Combination occurred at the beginning of the periods presented nor does
it purport to indicate the future results of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------
1996 1995 (1)
---------- --------
($ in millions)
<S> <C> <C>
Natural Gas and Electric Power Marketing Segment:
Operating margin ......................................... $ 54.4 $ 19.5
Natural Gas Marketing -
Average sales volume per day (Bcf/d) (2) .............. 3.5 3.4
Operations of unconsolidated foreign equity affiliates (3)
Average sales volume per day (Bcf/d) (4) .............. 3.5 1.8
Electric Power Marketing -
Gross sales volumes (gigawatt hours) .................. 4,558 895
Average megawatts per hour ............................ 1,043 206
Natural Gas Liquids, Crude Oil and Gas Transmission Segment:
Operating margin ......................................... $ 87.7 $ 69.1
Natural Gas Processing -
Operating margin ...................................... $ 44.9 $ 42.8
Gross barrels processed (MBbls/d) ..................... 70.5 87.7
Net barrels processed (MBbls/d) ....................... 54.8 68.5
Fractionation (5) -
Operating margin ...................................... $ 5.9 $ 8.5
Barrels received for fractionation (MBbls/d) .......... 110.6 113.2
Liquids and Crude Oil Marketing and Other -
Operating margin ...................................... $ 36.9 $ 17.8
NGL Marketing - sales volumes (MBbls/d) ............... 153.1 125.1
Crude Oil Marketing - sales volumes (MBbls/d) ......... 102.8 44.9
</TABLE>
(1) The pro forma information assumes that Trident and NGC were combined for
the three-month period ended March 31, 1995.
(2) Includes 0.01 Bcf/d in intercompany gas sales for the six-months ended
June 30, 1996 and 1995, respectively.
(3) Includes NCL and Accord.
(4) Includes 0.3 Bcf/d of inter-affiliate gas sales for the three-month
periods ended March 31,1996 and 1995, respectively.
(5) Information excludes the Company's proportionate share of GCF's margin
and fractionation volumes.
Net income for the six-months ended June 30, 1996, was $44.2 million, or $0.37
per share, compared with pro forma net income of $13.5 million, or $0.12 per
share, for the same period in 1995. Pro forma 1995 net income excludes the
aforementioned non-recurring income tax benefit of $45.7 million and includes an
incremental pro forma tax provision related to Clearinghouse's pre-combination
earnings. Consolidated operating margin for the six-month period ended June 30,
1996, increased to $142.1 million over the pro forma consolidated operating
margin of $88.6 million for the equivalent 1995 period. The increase in 1996's
historical consolidated operating
Page 16 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
margin as compared with the pro forma 1995 amount is attributed to improved
Marketing operating results due to higher volumes and margins in the 1996 period
as compared with the same 1995 period and improved Liquids results due
principally to higher NGL and crude oil sales volumes in 1996 as compared with
1995, offset partially by lower processing and fractionation volumes. Operating
income increased in 1996 as compared with the pro forma 1995 period by $42.2
million as a result of the aforementioned improved consolidated operating margin
offset by higher depreciation and amortization and general and administrative
expenses. After adjusting for the impact of the Combination, the higher 1996
depreciation and amortization and general and administrative expenses were
generally attributable to the same factors which affected actual results
described previously herein.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
NGC has historically relied upon operating cash flow and borrowings under its
credit facilities for its liquidity and capital resource requirements. As a
result of the Company's continued positive operating results, combined with the
liquidity and flexibility provided by available funds under its credit
facilities, the Company believes it will be able to meet all foreseeable cash
requirements, including working capital, capital expenditures, debt service and
costs associated with the Chevron transaction.
OPERATING CASH FLOW
The Company's cash flow from operating activities differs from reported net
income principally as a result of adjustments for non-cash items and changes in
working capital resulting from operating activities. The significant increase in
operating cash flow during the first six months of 1996 as compared with the
comparable 1995 period is principally a result of improved pre-tax earnings in
1996, increased cash flow in 1996 as compared with 1995 resulting from inventory
reductions required to meet the market demands created by the extremely cold
temperatures prevalent in the first quarter of 1996 and the effect non-cash
adjustments had on operating cash flow between periods. Such non-cash
adjustments are net of a $2.3 million dividend payment made in 1995 to the
Company by Accord. No dividends were received from Accord during the six-months
ended June 30, 1996. The following describes generally the impact working
capital changes may have on the Company's operating cash flow from period to
period.
ACCOUNTS RECEIVABLE. Generally, the level of NGC's accounts receivable is
impacted primarily by sales volumes and prices. Given the impact of seasonal
demand factors on the Company's sales volumes and the prices of natural gas,
NGLs and crude oil, NGC's accounts receivable are typically higher in the winter
months than during the balance of the year.
INVENTORIES. The Company maintains varying levels of natural gas, NGL and crude
oil inventories. Due to seasonal demand factors, natural gas and NGL inventories
are typically purchased during the summer months and sold during the winter
months. Generally, a significant portion of the Company's product inventories
held as of a year-end are expected to be sold during the first quarter of the
following year. Inventory purchases are generally discretionary; however,
periodic inventory accumulations allow the Company to capture peak
deliverability opportunities and to take advantage of expected seasonal price
differentials. Material and supplies inventory, used primarily at the Company's
processing plants and fractionation facilities, typically turn over more slowly
than product inventory volumes.
Page 17 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ACCOUNTS PAYABLE. The level of the Company's trade accounts payable will
generally follow in tandem with the level of trade accounts receivable as
purchased volumes and product prices will typically fluctuate directionally with
sales volumes and prices.
OTHER WORKING CAPITAL ACCOUNTS. Other working capital accounts, which include
prepayments, other current assets and accrued liabilities, reflect expenditures
or recognition of liabilities for insurance costs, certain deposits, salaries,
taxes other than on income, certain deferred revenue accounts and other similar
items. Fluctuations in these accounts from period to period reflect changes in
facts or changes in the timing of payments or recognition of liabilities and are
not directly impacted by seasonal factors.
CAPITAL EXPENDITURES, COMMITMENTS AND DIVIDEND REQUIREMENTS
The Company's business strategy has been to grow horizontally across all sectors
of the midstream energy business segment through strategic acquisitions or
construction of core operating facilities in order to capture the significant
synergies which management believes exist among these types of assets and NGC's
natural gas and NGL marketing businesses. During the first six months of 1996,
the Company spent $26.9 million principally on assorted acquisitions of
additional interests in gas processing facilities, for the acquisition of LPG
Services, Inc. and on capital improvements at existing facilities. During the
period, the Company received a $4.6 million payment from an unconsolidated
affiliate representing reimbursement of funds previously advanced to the entity.
Additionally, during the period, NGC received a $14.5 million payment from a
third party representing partial payment for certain contracts related to a
processing plant.
During the first six months of 1995, the Company spent an aggregate $255.0
million principally for the acquisition of Trident and certain pipeline assets,
other capital improvements and the contribution to NCL necessary to fund its
acquisition of Pan-Alberta. Approximately $166.9 million, exclusive of
transaction related costs, was required to consummate the tender offer related
to the Combination. These funds were provided by British Gas, NOVA and
Clearinghouse. Specifically, British Gas and NOVA each contributed $67.5 million
to their respective subsidiaries that participated in the Combination and
Clearinghouse provided $31.9 million to fund the balance. Clearinghouse funded
the $31.9 million and certain other costs associated with the Combination
through a combination of cash on hand and $25.0 million in borrowings under its
then existing credit agreement.
NGC currently declares an annual dividend of $0.05 per common share payable in
quarterly installments. During the six-months ended June 30, 1996, the Company
paid $4.1 million in cash dividends and the Company's Board of Directors, on
July 9, 1996, declared a $0.0125 per share dividend payable September 3, 1996,
to holders of record on July 29, 1996. Prior to the Combination, Clearinghouse
made distributions primarily to enable Clearinghouse's partners to pay tax
liabilities incurred as a result of Clearinghouse generated income which was
taken into account by the Clearinghouse Owners in computing their separate
income tax liabilities. During the first six-months of 1996, the Company
received $0.7 million from the Clearinghouse Owners related to tax advances made
by the Company prior to the Combination in amounts in excess of actual tax
liabilities. During the first six-months of 1995, dividends and distributions
totalled $7.9 million.
Page 18 of 23
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVOLVING CREDIT FACILITY
On March 14, 1995, the Company entered into the NGC Corporation Credit Agreement
("Credit Agreement"), which established a five-year $550 million revolving
credit facility. The Credit Agreement provides for letters of credit (up to $150
million) and borrowings for working capital, capital expenditures and general
corporate purposes of up to $550 million in the aggregate. The $550 million
commitment under the Credit Agreement reduces by $22.5 million each quarter
beginning in March 1998 and continuing through maturity. Generally, borrowings
under the Credit Agreement bear interest at a Eurodollar rate plus a margin that
is determined based on the Company's debt to capitalization ratio. The margin at
June 30, 1996, was 0.5 percent and the average interest rate applicable to
borrowings under the Credit Agreement approximated 5.87 percent. During the
first quarter of 1995, NGC entered into arrangements with financial institutions
that effectively capped the base Eurodollar rate on $100 million of borrowings
at rates between 8.5 percent and 9.1 percent through January 1998. The Credit
Agreement contains certain financial covenants which require the Company to meet
certain financial position and performance tests. At June 30, 1996, letters of
credit and borrowings outstanding under the Credit Agreement aggregated $157.4
million and unused borrowing capacity under the Credit Agreement approximated
$392.6 million. Certain amendments will be made to the Credit Agreement to
accommodate the Chevron transaction.
SHELF REGISTRATION OF $250 MILLION OF SENIOR NOTES
The Company has issued $150 million of 6.75 percent Senior Notes ("Notes")
pursuant to a $250 million shelf registration. Interest on the Notes is payable
semiannually on June 15 and December 15 of each year, beginning June 15, 1996.
The Notes represent general unsecured obligations of the Company and are fully
and unconditionally guaranteed on a joint and several basis by certain of the
Company's wholly-owned subsidiaries ("Subsidiary Guarantors"). Upon issuance,
the Notes were priced based on the then existing yield for 10-year U.S. Treasury
Notes ("Base Treasury Rate") plus a spread based principally on the Company's
credit rating. Prior to issuing the Notes, the Company entered into two separate
transactions with two separate financial institutions, the effect of which was
to lock in the Base Treasury Rate at approximately 6.2 percent on the full $150
million face value of the Notes.
Separate financial statements of each Subsidiary Guarantor have not been
provided herein because management has determined that such information would
not be material to investors as the aggregate assets, liabilities, earnings and
equity of the Subsidiary Guarantors is substantially equivalent to the Company's
consolidated assets, liabilities, earnings and equity. The Company also has
direct and indirect subsidiaries that are not Subsidiary Guarantors
(collectively "Non-guarantor Subsidiaries"). These Non-guarantor Subsidiaries,
both individually and in the aggregate, are inconsequential to NGC as of and for
each of the quarterly periods contained in this document.
TRIDENT NOTES
At June 30, 1996, Trident had outstanding $105 million principal amount of
10.25% Subordinated Notes due 2003 and $65 million principal amount of 14%
Senior Subordinated Notes due 2001, with interest payable semi-annually on both
notes. Beginning in 1998, corresponding with the first call dates, the Company
may repurchase the Subordinated Notes and Senior Subordinated Notes at 104.5
percent and 107 percent of the principal amount, respectively, with such
reacquisition prices reducing as the notes mature. The indentures covering the
Subordinated Notes and Senior Subordinated Notes contain covenants that, among
other things, require Trident to meet certain financial tests; limit the amount
of investments, dividends and asset sales that can be made by Trident; and
restrict the ability of Trident and its subsidiaries to incur additional
indebtedness, create or permit liens and engage in certain transactions.
Although Trident's net assets at June 30, 1996, approximated $355 million,
management does not believe that the terms of the indentures materially restrict
the ability of Trident to transfer funds to the Company given that Trident is a
Subsidiary Guarantor combined with the level of advances made by NGC to Trident.
The unamortized premium balance associated with each of the Subordinated Notes
and Senior Subordinated Notes represents a fair value adjustment to the
aggregate principal balance of the notes recognized as part of the Combination.
The unamortized premium balance of $16.9 million at June 30, 1996, is being
amortized using the interest method.
Page 19 of 23
NGC CORPORATION
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On February 12, 1996, Apache Corporation ("Apache") requested arbitration to
resolve issues arising under a gas marketing contract ("Contract") with
Clearinghouse pursuant to the arbitration provisions of such Contract. On
February 26, 1996, Clearinghouse responded by denying Apache's claims and by
alleging several counterclaims of its own with respect to Apache's performance
under the Contract. In connection with the arbitration proceedings, on April 9,
1996, Apache filed a lawsuit against Clearinghouse in the 55th Judicial District
Court of Harris County, Texas ("Court"). In that lawsuit, Apache alleges that
Clearinghouse is intentionally delaying the progress of the arbitration, and it
requests relief, pursuant to the Texas General Arbitration Act, in the form of
an order appointing a third arbitrator, compelling discovery and requiring
Clearinghouse to assign certain contracts allegedly belonging to Apache.
Clearinghouse filed a response to the lawsuit on May 6, 1996, asking that the
Court dismiss Apache's application for relief or abate the suit pending
resolution of all matters by the arbitration panel according to the terms of the
Contract. Clearinghouse has also requested payment of all attorneys' fees and
other litigation expenses incurred in responding to and defending the suit.
Clearinghouse intends to vigorously defend the Apache suit and the arbitration.
In the arbitration and again in the lawsuit, Apache claims that it is entitled
to actual damages in an undetermined amount in excess of $8 million, and
punitive damages calculated by tripling the amount of actual damages. NGC
management believes, based on its review of the facts and consultation with
outside counsel, that the ultimate resolution of the Apache suit will not have
an adverse impact on the Company's financial position or results of operations,
and that any payments eventually made in connection with the arbitration and/or
the lawsuit will be substantially less than the amount claimed.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 annual meeting (the "Annual Meeting") of the stockholders of NGC was
held on May 10, 1996. The purpose of the Annual Meeting was to consider and vote
upon the following proposals:
1. to elect ten directors to serve until the 1997 Annual Meeting of
Stockholders;
2. to approve the adoption of an amendment to the NGC Corporation
Non-Employee Director Compensation Plan;
3. to approve the adoption of an amendment to the Trident NGL Holding, Inc.
Amended and Restated 1991 Stock Option Plan; and
4. to ratify the selection of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending December 31, 1996.
The Company's Board of Directors is comprised of ten members. At the Annual
Meeting, each of the following individuals was re-elected to serve as a director
of the Company: C.L. Watson; Stephen W. Bergstrom; Stuart David Anderson; Dennis
W. Cottrell; Roy Alan Gardner; C. Kent Jespersen; Jeffrey M. Lipton; Albert
Terrance Poole; Daniel L. Dienstbier; and J. Otis Winters.
The following votes were cast with respect to the approval of an amendment of
the NGC Corporation Director Compensation Plan:
For: 101,233,325
Against/Withheld: 817,189
Abstentions: 31,658
Broker non-votes: 40,383
Page 20 of 23
The following votes were cast with respect to the approval of an amendment to
the Trident NGL Holding, Inc. Amended and Restated 1991 Stock Option Plan:
For: 97,182,652
Against/Withheld: 2,586,332
Abstentions: 45,443
Broker non-votes: 2,308,128
The following votes were cast with respect to the ratification of the selection
of Arthur Andersen LLP as independent auditors of the Company for the fiscal
year ending December 31, 1996:
For: 100,552,207
Against/Withheld: 787,078
Abstentions: 11,059
Broker non-votes: 772,211
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following instruments and documents are included as exhibits to this
Form 10-Q.
Exhibit
NUMBER DESCRIPTION
2.1 Combination Agreement and Plan of Merger, dated October 21,
1994, among Trident NGL Holding, Inc., Natural Gas
Clearinghouse, British Gas General Partner Inc., British Gas
Limited Partner Inc., British Gas NGC L.P., NOVA NGC, Inc.,
Participating Employee Partners, C.L. Watson, Inc., Stephen W.
Bergstrom, Inc., Gilbert Burciaga, Inc., A.R. Cipriani, Jr.,
Inc., David C. Feldman, Inc., James T. Hackett, Inc., H. Keith
Kaelber, Inc., Kenneth E. Randolph, Inc., Donald R. Sinclair,
Inc. and Jacob S. Ulrich, Inc. (1)
2.2 Combination Agreement and Plan of Merger by and between NGC
Corporation, Chevron U.S.A. Inc. and Midstream Combination Corp.
dated March 22, 1996 (4)
3.1 Amended and Restated Certificate of Incorporation of NGC
Corporation (2)
3.2 Amended and Restated ByLaws of NGC Corporation (3)
10.1 Form of Voting Agreement dated May 22, 1996 between Chevron
U.S.A. Inc. and BG Holdings, Inc.(5)
10.2 Scope of Business Agreement dated May 22, 1996 between Chevron
Corporation and NGC Corporation(5)
10.3 Stockholders Agreement, dated May 22, 1996, among BG Holdings,
Inc., NOVA Gas Services (U.S.) Inc. and Chevron U.S.A. Inc.(5)
10.4 Employment Agreement dated April 2, 1996 by and between NGC
Corporation and Mr. Stephen A. Furbacher(5)
10.5 Employment Agreement dated March 15, 1996 by and between NGC
Corporation and Mr. Mark L. Hazelwood(5)
10.6 Lease Agreement entered into on June 12, 1996 between
Metropolitan Life Insurance Company and Metropolitan Tower
Realty Company, Inc., as landlord, and NGC Corporation, as
tenant(5)
10.7 First Amendment to Lease Agreement entered into on June 12, 1996
between Metropolitan Life Insurance Company and Metropolitan
Tower Realty Company, Inc., as landlord, and NGC Corporation, as
tenant(5)
- --------------
(1) Incorporated by reference to exhibits to the Current Report on
Form 8-K of Trident NGL Holding, Inc., Commission File No.
1-11156, dated October 21, 1994.
(2) Incorporated by reference to exhibits to the Annual Report on
Form 10-K of NGC Corporation for the Fiscal Year Ended December
31, 1994, Commission File No. 1-11156.
Page 21 of 23
(3) Incorporated by reference to exhibits to the Annual Report on
Form 10-K of NGC Corporation for the Fiscal Year Ended December
31, 1995, Commission File No. 1-11156.
(4) Incorporated by reference to exhibits to the Current Report on
Form 8-K of NGC Corporation, dated May 22, 1996, Commission File
No. 1-11156.
(5) Incorporated by reference to exhibits to the Registration
Statement of Midstream Combination Corp. on Form S-4,
Registration No. 333-09419.
b. Reports on Form 8-K
Current Report on Form 8-K, Commission File No. 1-11156, dated May 22,
1996, relating to the signing of the Combination Agreement and Plan of
Merger by NGC Corporation ("NGC"), Chevron U.S.A. Inc. ("Chevron") and
an affiliate of Chevron concerning a strategic business combination
pursuant to which substantially all of Chevron's gas gathering,
processing and marketing operations will be merged with NGC.
Page 22 of 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
NGC CORPORATION
Date: AUGUST 14, 1996 By: /s/ H. KEITH KAELBER
H. Keith Kaelber, Senior Vice President
and Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Page 23 of 23
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